Killing it like a hooker in Hong Kong

It’s unusual – but for some struggling investors somehow comforting – to see that occasionally, the Singaporeans make bum investment decisions and end up losing (a lot) of money.

Following earlier news that Australand Property Group, the Australian unit of Singapore’s CapitaLand, will seek as much as A$557m ($532m) from shareholders after first-half profit dropped 79 per cent amid plunging property values, it seems timely to examine the forays by various Singaporean entities into ventures Down Under.

As Mayne noted in his daily blog The Mayne Report, Australand began the day with a market cap of A$905m and claimed net tangible assets of A$1.66 per share, despite the stock having tumbled from a December 2007 peak of A$2.60 to Friday’s close of just 98c.

Lo and behold, says Mayne, “today we get a one for one rights issue priced at just 60c, with Sing Inc only promising to step in for their share of $302m whilst the remaining $255m could fail if the stock tanks when trading resumes”.

Wow, that is a shocker, Capitaland refused to underwrite the entire issue, which basically indicates a lack of confidence. That’s going to drive the price below the issue price and lead to the issue not closing. Ouch.

If Singapore Inc wasn’t standing behind Australand, you have to wonder if the company would have even survived because for shock value today’s announcement is very similar to the surprising $500m capital raising that then-MFS chief executive Michael King unveiled on Friday, January 18, 2008, before he resigned the following Monday.

Australand’s chairman made the following statement at the April 17 AGM: “Our balance sheet and the facilities we have in place are well supported by quality assets and strong operating cash flows from the business.”

The company’s chief executive Bob Johnston also gave no hint of the coming drama, reassuring shareholders that gearing was only 40.4 per cent, net profit came in at A$269m in 2007 and distributions were a most impressive 17c a share.

The collapsing listed property trust sector has turned up some extraordinary developments but, as Mayne notes, “if even the Singapore government’s vehicle is in trouble with total debts of A$1.5bn, things must be really crook”.

And, when you sit down to tabulate the – er, less lucrative – among Singapore Inc’s Aussie experiences of late – “terrible” is Mayne’s word. Singapore Power laid out A$8.14bn in cash for the Alinta east coast assets last August and then failed to flip it into SP Ausnet. This has left Singapore Power lumbered with A$17bn in debt and the same power assets are today probably worth about A$6bn.

A little untrue. The debt is probably non-recourse. And not to worry, long term. They’re going to have low yields for a couple of years, but this should recover.

Singapore Inc’s Temasek meanwhile ploughed A$400m into ABC Learning at $7.30 a share 12 months ago and has watched almost 90 per cent of that evaporate.

Ouch. This I did not now.

Similarly, the decision to take a one third interest in the Myer Melbourne property play at a valuation of A$600m now looks ridiculous, as does the $717.5m purchase of a half share in Westfield Parramatta in April 2007 on a skinny yield of about 5 per cent.

Minister for Foreign Affairs George Yeo’s Interview with Astro Awani Television on 4 February 2008

Q: Of course. So what are your comments then on generally people coming into Singapore? As you said it’s a city-state, you have got limited resources and then you are going to have this sporting event that will bring thousands and thousands and thousands of people. I mean it’s great for business but will Singapore be able to cope with it?

Minister: That’s a problem that we have got to solve. This is not a theme park, this is home for us. [] And Singaporeans sometimes get upset by this because prices go up or foreigners have habits which we are not familiar with, they make friends with our girls, I mean so there are all kinds of problems which we face because we are opening up even more than before. [] You open the windows, the flies come in, and of course you also get fresh air and the sunshine.

About

Paul Delima is a bouncing ball of energy. He is exuberation personified. Paul Delima lives between Shanghai and Jakarta, speaks four languages and breathes economics like others snort coke.

He is overqualified, overpaid, underworked, and takes great pleasure for calling bullshit when he sees it.

He likes receiving non-spam comments.

Paul Delima is originally from Southern California, and graduated from Harvard without honors in 1997. He moved out to Hong Kong and worked for an investment bank, got a CFA along the way, rode out two Asian downturns, and joined a hedge fund.

Paul Delima now does Asian bankruptcy work, and has an active interest in distressed firms of all kinds.